In the past week, as the historic peace summit between the governments of North and South Korea have stunned the world, many of the top military stocks are in a free fall. The military-industrial complex is probably not losing any sleep though, as they have plenty of other wars to keep their portfolios afloat. However, for the rest of us, this is an important moment to take note of, because it shows the massive incentive that there is in the industry of war and it shows how closely these profits are correlated with geopolitics.
There is an unspeakable amount of money to be made by the people who sell weapons and ammunition to countries at war. The arms dealers never take sides, but are always happy to take billions of dollars from opposing nations of every war so their customers can destroy each other. To people in this industry, the idea of peace is bad for business, if there is peace then surely the weapons industry wouldn’t be the least bit successful.
This week we saw how even rumors of peace in a world filled with war can put a dent in the value of these companies. Below are the stock charts for some of the top defense corporations, each of them showing an identical fall around 4/24, about the same time when news of the peace summit really began to go viral. Boeing is the only defense contractor that did not see a massive decline similar to these companies, but they have a number of commercial products and are not entirely dependent on war for all of their revenue. These charts were gathered from Nasdaq.com.
Lockheed Martin (LMT)
Northrop Grumman (NOC)
General Dynamics (GD)
L3 Technologies (LLL)
Harris Corporation (HRS)
Curtiss-Wright Corporation (CW)
As you can see, all of these companies have seen a sharp decline around the same time, and while correlation does not always equal causation, the fact that these drops coincide with the Korean peace talks do not appear to be a coincidence.
Back in 2015, executives from many of these companies were caught celebrating news of war because it would mean higher profits for them.
At a Credit Suisse conference in West Palm Beach, representatives from major defense contractors spoke to their investors about how well business was going in these times of global war. Representatives from top firms like Raytheon, Oshkosh, and Lockheed Martin were in attendance, in somewhat of a celebration of the escalating conflict in the middle east and Africa.
Lockheed Martin Executive Vice President Bruce Tanner gave a speech openly praising the “indirect” benefits that defense contractors would see as a result of the war in Syria. A portion of his speech was captured on audio by someone inside and shared widely on the internet hours after the conference.
In the audio that was captured, Tanner discussed the many recent troubles in the Middle East, with an escalation of conflict in Syria and Turkey. He pointed out how these conflicts would lead to increased sales for their company.
Tanner said that the increased conflict would cause “an intangible lift because of the dynamics of that environment and our products in theater.”
According to the Intercept, during another speech at the conference, Wilson Jones, the president of the defense manufacturer Oshkosh, said that “with the ISIS threat growing, there are more countries interested in buying Oshkosh-made M-ATV armored vehicles.”
Raytheon Chief Executive Tom Kennedy also joined in the informal celebration, saying that his company was seeing “a significant uptick for defense solutions across the board in multiple countries in the Middle East.”
“It’s all the turmoil they have going on, whether the turmoil’s occurring in Yemen, whether it’s with the Houthis, whether it’s occurring in Syria or Iraq, with ISIS,” Kennedy added.
In addition to the growing wars, the contractors also celebrated the fact that the defense sector was recently granted a $607 billion budget by the government.